<PAGE>   1
                       SECURITIES AND EXCHANGE COMMISSION
                             WASHINGTON, D.C. 20549

                                    FORM 10-Q

(Mark One)

[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2000

                                       OR

[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
    EXCHANGE ACT OF 1934


For the transition period from _____________________to _______________________


                         Commission File Number: 0-19594

                          INSURANCE AUTO AUCTIONS, INC.
                          -----------------------------
             (Exact name of registrant as specified in its charter)

Illinois                                                         95-3790111
--------------------------------------------------------------------------------
(State or other jurisdiction                                  (I.R.S. Employer
of incorporation or organization)                            Identification No.)

850 East Algonquin Road, Suite 100, Schaumburg, Illinois             60173-3855
--------------------------------------------------------------------------------
(Address of principal executive offices)                             (Zip Code)

                                 (847) 839-3939
--------------------------------------------------------------------------------
              (Registrant's telephone number, including area code)


         Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.

                                                        [X]  Yes        [ ] No

                      APPLICABLE ONLY TO CORPORATE ISSUERS

Number of shares outstanding of each of the issuer's classes of common stock, as
of June 30, 2000:



                 Class                       Outstanding June 30, 2000
                 -----                       -------------------------
        Common Stock, $0.001 Par Value           11,684,091 shares

<PAGE>   2
                                      INDEX

                          INSURANCE AUTO AUCTIONS, INC.

<TABLE>
<CAPTION>

                                                                                               PAGE NUMBER
                                                                                               -----------
<S>                                                                                            <C>
PART I.  FINANCIAL INFORMATION..............................................................      3

Item 1.  Financial Statements (Unaudited)...................................................      3

         Condensed Consolidated Statements of Operations for the
              Three Month and Six Month Periods ended June 30, 2000 and June 30, 1999.......      3
         Condensed Consolidated Balance Sheets
              as of June 30, 2000 and December 31, 1999.....................................      4
         Condensed Consolidated Statements of Cash Flows for the
              Six Month Periods ended June 30, 2000 and June 30, 1999.......................      5
         Notes to Condensed Consolidated Financial Statements...............................      6

Item 2.  Management's Discussion and Analysis of Financial Condition
              and Results of Operations.....................................................      6

Item 3.  Quantitative and Qualitative Disclosures about Market Risk.........................     12

PART II. OTHER INFORMATION..................................................................     13

Item 1.  Legal Proceedings..................................................................     13

Item 2.  Changes in Securities..............................................................     13

Item 3.  Defaults upon Senior Securities....................................................     13

Item 4.  Submission of Matters to a Vote of Security Holders................................     13

Item 5.  Other Information..................................................................     13

Item 6.  Exhibits and Reports on Form 8-K...................................................     13

SIGNATURES        ..........................................................................     14
</TABLE>


                                       2

<PAGE>   3
                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS

<TABLE>
<CAPTION>


                                                Three Month Periods                Six Month Periods
                                                  Ended June 30,                    Ended June 30,
                                                  --------------                    -------------
                                                    (Unaudited)                      (Unaudited)
                                              2000             1999              2000            1999
                                              ----             ----              ----            ----
<S>                                      <C>              <C>              <C>              <C>
Net revenues:
     Vehicle sales                       $  50,845,000    $  54,411,000    $ 105,809,000    $ 105,669,000
     Fee income                             33,431,000       28,120,000       65,427,000       56,740,000
                                         -------------    -------------    -------------    -------------
                                            84,276,000       82,531,000      171,236,000      162,409,000
Costs and expenses:
     Cost of sales                          60,089,000       59,836,000      123,944,000      119,777,000
     Direct operating expenses              14,409,000       14,199,000       29,427,000       27,823,000
     Amortization of acquisition costs         985,000          949,000        1,933,000        1,899,000
                                         -------------    -------------    -------------    -------------

         Earnings from operations            8,793,000        7,547,000       15,932,000       12,910,000

Other (income) expense:
     Interest expense                          457,000          493,000          921,000          987,000

     Interest income                          (470,000)        (326,000)        (881,000)        (551,000)
                                         -------------    -------------    -------------    -------------

         Earnings before income taxes        8,806,000        7,380,000       15,892,000       12,474,000

Income taxes                                 3,611,000        3,123,000        6,516,000        5,364,000
                                         -------------    -------------    -------------    -------------

Net earnings                             $   5,195,000    $   4,257,000    $   9,376,000    $   7,110,000
                                         =============    =============    =============    =============

Earnings per share:
     Basic                               $         .45    $         .37    $         .81    $         .62
                                         =============    =============    =============    =============
     Diluted                             $         .44    $         .37    $         .79    $         .62
                                         =============    =============    =============    =============

Weighted average shares outstanding:
     Basic                                  11,634,000       11,421,000       11,610,000       11,381,000
     Effect of dilutive securities -
       stock options                           252,000          179,000          218,000          114,000
                                         -------------    -------------    -------------    -------------
     Diluted                                11,886,000       11,600,000       11,828,000       11,495,000
                                         =============    =============    =============    =============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                        3
<PAGE>   4

                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES
                      CONDENSED CONSOLIDATED BALANCE SHEETS

<TABLE>
<CAPTION>

                                                                             June 30,        December 31,
                                                                               2000              1999
                                                                         ----------------  ----------------
ASSETS                                                                     (Unaudited)
<S>                                                                      <C>               <C>
Current assets:
     Cash and cash equivalents                                             $ 31,448,000      $ 27,186,000
     Short-term investments                                                   8,615,000         6,845,000
     Accounts receivable, net                                                41,580,000        40,188,000
     Inventories                                                             11,692,000        11,998,000
     Other current assets                                                     2,283,000         1,655,000
                                                                           ------------      ------------
         Total current assets                                                95,618,000        87,872,000
                                                                           ------------      ------------


Property and equipment, net                                                  31,403,000        27,458,000
Investments in marketable securities                                          4,162,000         3,336,000
Deferred income taxes                                                         4,493,000         4,338,000
Other assets, principally goodwill, net                                     129,536,000       125,128,000
                                                                           ------------      ------------

                                                                           $265,212,000      $248,132,000
                                                                           ============      ============

LIABILITIES AND SHAREHOLDERS' EQUITY

Current liabilities:
     Current installments of long-term debt                                $     41,000      $    135,000
     Accounts payable                                                        37,932,000        33,216,000
     Accrued liabilities                                                      6,822,000         6,306,000
     Income taxes                                                             1,617,000         1,226,000
                                                                           ------------      ------------
         Total current liabilities                                           46,412,000        40,883,000
                                                                           ------------      ------------

Long-term debt, excluding current installments                               20,160,000        20,180,000
Accumulated postretirement benefits obligation                                3,087,000         3,178,000
Deferred income taxes                                                         9,493,000         8,605,000
                                                                           ------------      ------------

         Total liabilities                                                   79,152,000        72,846,000
                                                                           ------------      ------------

Shareholders' equity:
Preferred stock, par value of $.001 per share
     Authorized 5,000,000 shares; none issued                                      --                --
Common stock, par value of $.001 per share
     Authorized 20,000,000 shares; issued and outstanding
     11,684,091 and 11,575,010 shares as of June 30, 2000
     and December 31, 1999, respectively                                         12,000            12,000
Additional paid-in capital                                                  136,394,000       134,996,000
Retained earnings                                                            49,654,000        40,278,000
                                                                           ------------      ------------

         Total shareholders' equity                                         186,060,000       175,286,000
                                                                           ------------      ------------

                                                                           $265,212,000      $248,132,000
                                                                           ============      ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       4
<PAGE>   5
                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES
                 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                   (UNAUDITED)

<TABLE>
<CAPTION>

                                                                                     Six Month Periods
                                                                                        Ended June 30,
                                                                                ----------------------------
                                                                                    2000            1999
                                                                                    ----            ----
<S>                                                                             <C>             <C>
Cash flows from operating activities:
Net earnings                                                                    $  9,376,000    $  7,110,000
Adjustments to reconcile net earnings to net cash
   provided by operating activities:
     Depreciation and amortization                                                 4,790,000       4,484,000
     (Gain) loss on disposal of fixed assets                                         (22,000)        (47,000)
     Change in assets and liabilities (net of effects of acquired companies):
     (Increase) decrease in:
       Investments, net                                                           (2,596,000)     (3,016,000)
       Accounts receivable, net                                                     (826,000)      3,280,000
       Inventories                                                                   306,000        (203,000)
       Other current assets                                                         (628,000)       (152,000)
       Other assets                                                                   30,000         (21,000)
     Increase (decrease) in:
       Accounts payable                                                            4,274,000      (5,634,000)
       Accrued liabilities                                                           419,000         270,000
       Income taxes payable                                                        1,124,000       1,343,000
                                                                                ------------    ------------
         Total adjustments                                                         6,871,000         304,000
                                                                                ------------    ------------

     Net cash provided by operating activities                                    16,247,000       7,414,000
                                                                                ------------    ------------

Cash flows from investing activities:
   Capital expenditures                                                           (6,432,000)     (4,021,000)
   Proceeds from disposal of fixed assets                                             88,000          70,000
   Payments made in connection with acquired companies,
     net of cash acquired                                                         (6,925,000)           --
                                                                                ------------    ------------

     Net cash used in investing activities                                       (13,269,000)     (3,951,000)
                                                                                ------------    ------------

Cash flows from financing activities:
   Proceeds from issuance of common stock                                          1,398,000       1,400,000
   Principal payments of long-term debt                                             (114,000)       (203,000)
                                                                                ------------    ------------

Net cash provided by financing activities                                          1,284,000       1,197,000
                                                                                ------------    ------------

Net increase in cash                                                               4,262,000       4,660,000

Cash and cash equivalents at beginning of period                                  27,186,000      11,682,000
                                                                                ------------    ------------

Cash and cash equivalents at end of period                                      $ 31,448,000    $ 16,342,000
                                                                                ============    ============

Supplemental disclosures of cash flow information:
   Cash paid during the year for:
     Interest                                                                   $    860,000    $    860,000
                                                                                ============    ============
     Income taxes                                                               $  5,154,000    $  4,121,000
                                                                                ============    ============
</TABLE>

See accompanying notes to condensed consolidated financial statements.

                                       5
<PAGE>   6

                          INSURANCE AUTO AUCTIONS, INC.
                                AND SUBSIDIARIES

              NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
                                   (UNAUDITED)

1.     GENERAL

       The unaudited condensed consolidated financial statements of Insurance
       Auto Auctions, Inc. and its subsidiaries (collectively, the "Company")
       have been prepared on the same basis as the audited consolidated
       financial statements and, in the opinion of the Company, reflect all
       adjustments (consisting of normal recurring adjustments, except as
       otherwise described in Note 3) necessary for a fair presentation for each
       of the periods presented. The results of operations for interim periods
       are not necessarily indicative of results for full fiscal years.

       As contemplated by the Securities and Exchange Commission ("SEC") under
       Rule 10-01 of Regulation S-X, the accompanying consolidated financial
       statements and related notes have been condensed and do not contain
       certain information that is included in the Company's annual consolidated
       financial statements and notes thereto. For further information, refer to
       the consolidated financial statements and notes thereto included in the
       Company's annual report on Form 10-K for the year ended December 31,
       1999.

2.     INCOME TAXES

       Income taxes were computed using the effective tax rate estimated to be
       applicable for the full fiscal year, which is subject to ongoing review
       and evaluation by the Company.

3.     ACQUISITIONS

       In March 2000, the Company acquired two companies, Wisconsin Auto
       Auction, L.L.C. of Milwaukee and Valley Auto Pool, Inc. of Appleton,
       Wisconsin, for $6.0 million cash. In June 2000, the Company acquired
       Insurance Salvage Services of South Carolina ("ISS") for $925,000 cash.
       ISS operated two sites in South Carolina located in Greenville and
       Charleston. These acquisitions were accounted for as purchases, and the
       results of their operations are included in the Company's consolidated
       financial statements from the date of acquisition.

4.     RECLASSIFICATION

       Certain reclassifications have been made to the 1999 financial
       statements and footnotes to conform with the current year presentation.

ITEM 2.  MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.

This report on Form 10-Q contains forward-looking information that is subject to
certain risks, trends and uncertainties that could cause actual results to
differ materially from those projected, expressed or implied by such forward
looking information. In some cases, you can identify forward looking statements
by our use of words such as "may, will, should, anticipates, believes, expects,
plans, future, intends, could, estimate, predict, potential or contingent," the
negative of these terms or other similar expressions. The Company's actual
results could differ materially from those discussed or implied herein. Factors
that could cause or contribute to such differences include, but are not limited
to, those discussed in "Factors That May Affect Future Results" below and the
Company's annual report on Form 10-K for the fiscal year ended December 31,
1999. Among these risks are legislative acts, changes in the market value of
salvage, competition, quality and quantity of inventory available from
suppliers, availability of suitable acquisition candidates and dependence on key
insurance company suppliers.

                                       6
<PAGE>   7

OVERVIEW

       The Company offers insurance companies and other vehicle suppliers
cost-effective salvage processing solutions through a variety of different
methods of sale, including percentage of sale consignment ("Percentage Plus"),
fixed fee consignment, and purchase agreement. Under the Percentage Plus and
fixed fee sales methods, the vehicle is not owned by the Company and only the
fees associated with the processing and sale of the vehicle are recorded in net
sales. The Percentage Plus method offers potentially increased profits over
fixed fee consignment by providing incentive to both the Company and the salvage
provider to invest in vehicle enhancements thereby maximizing the vehicle
selling prices. Under the purchase agreement sales method, the vehicle is owned
by the Company and the sales price of the vehicle is recorded in revenue. By
assuming some of the risk inherent in owning the salvage vehicle instead of
selling on a consignment basis, the Company is potentially able to increase
profits by improving the value of the salvage vehicle prior to the sale.

       Under the purchase agreement method, IAA generally pays the insurance
company a pre-determined percentage of the ACV to purchase the vehicle. ACV's
are the estimated pre-accident fair value of a vehicle, adjusted for additional
equipment, mileage and other factors. Because the Company's purchase price is
fixed by contract, changes in ACV's or in the market or auction prices for
salvage vehicles have an impact on the profitability of the sale of vehicles
under the purchase agreement method. If increases in used car prices and ACV's
are not associated with a corresponding increase in prices at salvage auctions,
there can be a negative impact on the profitability of purchase agreement sales.
To mitigate these risks, the Company has adjustment and risk-sharing clauses in
its standard purchase agreement contracts designed to provide some protection to
the Company and its customers from certain unexpected, significant changes in
the ACV/salvage price relationship.

       Since its initial public offering, the Company has grown primarily
through a series of acquisitions to now include 54 locations as of June 30,
2000.

       The Company's operating results are subject to fluctuations, including
quarterly fluctuations, that can result from a number of factors, some of which
are more significant for sales under the purchase agreement method. See "Factors
That May Affect Future Results" below for a further discussion of some of the
factors that affect or could affect the Company's business, operating results
and financial condition.

RESULTS OF OPERATIONS

Three Months Ended June 30, 2000 Compared to the Three Months Ended
June 30, 1999

       Net sales of the Company increased to $84.3 million for the three months
ended June 30, 2000, from $82.5 million for the same three month period in 1999,
a 2% increase. Auction proceeds increased 4.5% to $176.7 million in the second
quarter of 2000 from $163.7 million in the comparable period in 1999.

       Fee income increased 19% versus last year. This increase reflects the
continued emphasis on converting customers to the Percentage Plus method as well
as other profit enhancement initiatives and certain price increases. For the
second quarter of 2000, 24% of units sold were under the Percentage Plus method
versus 15% in 1999. The purchase agreement method of sales accounted for 26% of
total units sold, compared to 29% for the same period last year.

       Gross profit increased 7% to $24.2 million for the three months ended
June 30, 2000, from $22.7 million for the same period in 1999. The increase in
gross profit is primarily the result of higher volumes and a marginal increase
in gross profit per unit compared to the same period of 1999. The increase in
gross profit per unit is primarily the result of the continued rollout of
several gross profit enhancement initiatives and certain fee increases. The
overall increase in gross profit per unit was partially offset by lower per unit
profits on purchase agreement vehicles when compared to last years strong gross
profit per unit on purchase agreement vehicles.

                                       7
<PAGE>   8

              Direct operating expenses increased slightly to $14.4 million for
the three months ended June 30, 2000, from $14.2 million for the same period in
1999. This increase resulted from acquisitions in Wisconsin and South Carolina
which were made in March and June of 2000, respectively and an increased
investment in information systems.

              Interest expense was $457,000 for the three month period ended
June 30, 2000 versus $493,000 last year. Interest income increased to $470,000
for the three month period ended June 30, 2000, from $326,000 for the
comparable period in 1999. The increased interest income is the result of an
increase in cash equivalents and short-term investments.

              Income taxes increased to $3.6 million for the three months ended
June 30, 2000, from $3.1 million for the comparable period in 1999. This
increase is the result of the increase in earnings. The Company's effective tax
rate for the three months ended June 30, 2000 was 41% versus 42% for the
comparable period in 1999. The effective tax rate is subject to ongoing review
and evaluation by the Company.

              The Company's net earnings were $5.2 million for the three months
ended June 30, 2000, a 22% increase from $4.3 million for the comparable period
in 1999.

Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999

              Net sales of the Company increased to $171.2 million for the six
months ended June 30, 2000, from $162.4 million for the same six month period in
1999, a 5% increase. Auction proceeds increased to $352.4 million for the first
six months of 2000 from $329.7 million in the comparable period of 1999.

              Fee income increased 15% versus last year. This increase reflects
the continued emphasis on converting customers to the Percentage Plus method as
well as other profit enhancement initiatives and certain price increases. For
the first six months of 2000, 21% of the units sold were on the Percentage Plus
method versus 15% in 1999. The purchase agreement sales method of processing
accounted for 27% of total units sold versus 29% for the same period in 1999.

               Gross profit increased 11% to $47.3 million for the six months
ended June 30, 2000, from $42.6 million for the same period in 1999. The
increase in gross profit is the result of higher volumes and increased gross
profit per unit compared to the same period of 1999. The increase in gross
profit per unit is primarily the result of the continued rollout of several
gross profit enhancement initiatives and certain fee increases.

              Direct operating expenses increased to $29.4 million for the six
months ended June 30, 2000, from $27.8 million for the same period in 1999. The
increase in expenses reflects the acquisitions in Wisconsin and South Carolina
which were made in March and June of 2000, respectively. On a same-store basis,
expenses increased approximately 4% versus last year reflecting the increased
investment in information systems.

              Interest expense decreased slightly to $921,000 for the six months
ended June 30, 2000, from $1.0 million for the same period in 1999. Interest
income increased to $881,000 for the six month period ended June 30, 2000, from
$551,000 for the comparable period in 1999. The increase is the result of an
increase in cash equivalents and short term investments.

              Income taxes increased to $6.5 million for the six months ended
June 30, 2000, from $5.4 million for the comparable period in 1999. This
increase is the result of the increase in earnings. The Company's effective tax
rate for the six months ended June 30, 2000 was 41% versus 43% for the
comparable period in 1999. The effective tax rate is subject to ongoing review
and evaluation by the Company.

              The Company's net earnings were $9.4 million for the six months
ended June 30, 2000, a 32% increase from $7.1 million for the comparable period
in 1999.

                                       8
<PAGE>   9

FINANCIAL CONDITION AND LIQUIDITY

              At June 30, 2000, the Company had current assets of $95.6 million,
including $31.4 million of cash and cash equivalents and $8.6 million of
short-term investments. Current liabilities were $46.4 million. The Company had
working capital of $49.2 million at June 30, 2000, a $2.2 million increase from
December 31, 1999.

              At June 30, 2000, the Company's indebtedness consisted mostly of
8.6% Senior Notes of $20.0 million and amounts due to the sellers related to
certain acquisitions. There were no borrowings outstanding on the Revolving Line
of Credit Facility at June 30, 2000.

              Capital expenditures were approximately $6.4 million for the six
months ended June 30, 2000. These capital expenditures primarily included
upgrading and expanding the Company's management information system and the
Company's facilities. The Company currently leases most of its facilities and
other properties.

              In March 2000, the Company acquired two companies, Wisconsin Auto
Auction LLC of Milwaukee and Valley Auto Pool, Inc. of Appleton, Wisconsin for
$6.0 million cash. In June 2000, the Company acquired Insurance Salvage Services
("ISS") of South Carolina for $925,000 cash. ISS operated two sites in South
Carolina located in Greenville and Charleston.

              The Company believes that cash generated from operations and its
borrowing capacity under its $15 million revolving line of credit will be
sufficient to fund capital expenditures and provide adequate working capital for
operations for the next twelve months. Part of the Company's plan is continued
growth possibly through new facility start-ups, acquisitions, and the
development of new claims processing services. At some time in the future, the
Company may require additional financing. There can be no assurance that
additional financing, if required, will be available on favorable terms.

              The Company's operating results have not historically been
materially affected by inflation.

OTHER

              On February 16, 2000, an Emery Worldwide DC-8 cargo jet crashed
into the Company's facility in Rancho Cordova, California (the "Rancho Branch").
All three Emery crew members died, but there were no injuries or fatalities on
the ground.

              Approximately 850 vehicles at the Rancho Branch awaiting sale by
the Company were destroyed or damaged by the crash and the ensuing fire
("Inventory Damage"). The Emery plane crash and fire caused the release of
hazardous substances at the crash site, necessitating certain environmental
remediation activities at the site which are ongoing.

              The Company has made an initial claim with its insurance carrier
for the Inventory Damage. In addition, because the Rancho Branch was closed for
a brief period after the crash, the Company has made an initial "business
interruption" claim with its insurance carrier. The Company believes it has
adequate insurance coverage in place to cover these damages.

              The Company also intends to make a claim with its insurance
carrier for property damage at the Rancho Branch, including costs of
environmental remediation. Coverage under the Company's insurance policies for
environmental remediation may, however, be limited and less than necessary to
cover all environmental remediation costs. The Company will also seek recovery
of one-half of the cost of environmental remediation from the landlord of the
Rancho Branch pursuant to the terms of a lease. Environmental remediation of the
site has not yet been completed.

                                       9
<PAGE>   10

              The Company believes that Emery Worldwide and others potentially
responsible for the crash (the "Responsible Parties") will ultimately be held
responsible for any and all damages, including environmental costs, incurred by
the Company as a result of the crash. Accordingly, the Company has not
recognized any liability as of June 30, 2000. The Company intends to vigorously
pursue any and all claims under applicable law against the Responsible Parties
to recover its damages.

              In light of the availability of adequate insurance coverage and
its claims against the Responsible Parties, whom the Company believes have
adequate financial resources, the Company does not believe the crash will have a
material adverse effect on its financial position or future operating results,
although no assurance can be given in this regard.

FACTORS THAT MAY AFFECT FUTURE RESULTS

              The Company operates in a changing environment that involves a
number of risks, some of which are beyond the Company's control. The following
discussion highlights some of these risks.

              Quarterly Fluctuations. The Company's operating results have in
the past and may in the future fluctuate significantly depending on a number of
factors, some of which are more significant for sales under the purchase
agreement method. These factors include changes in the market value of salvage
vehicles, attendance at salvage auctions, delays or changes in state title
processing, fluctuations in ACVs of salvage vehicles, changes in regulations
governing the processing of salvage vehicles, general weather conditions and the
availability and quality of salvage vehicles. The Company is also dependent upon
receiving a sufficient number of total loss vehicles as well as recovered theft
vehicles to sustain its profit margins. Factors which can effect the number of
vehicles received include: reduction of policy writing by insurance providers
which would affect the number of claims over a period of time, and changes in
direct repair procedures that would reduce the number of newer less damaged
total loss vehicles that tend to have the higher salvage values. Additionally in
the last few years there has been a declining trend in theft occurrences. As a
result, the Company believes that period-to-period comparisons of its results of
operations are not necessarily meaningful and should not be relied upon as any
indication of future performance. In addition, revenues for any future quarter
are not predictable with any significant degree of accuracy, while the Company's
expense levels are relatively fixed. If revenue levels are below expectations,
operating results are likely to be adversely affected. Due to all of the
foregoing factors, it is likely that in some future quarters the Company's
operating results will be below the expectations of public market analysts and
investors.

              Quality and Quantity of Inventory Available from Suppliers. The
Company is dependent upon receiving a sufficient number of total loss vehicles
as well as recovered theft vehicles to sustain its profit margins. Factors which
can effect the number of salvage vehicles received include the reduction of
policy writing by insurance providers which would affect the number of claims
over a period of time, and changes in direct repair procedures that would reduce
the number of newer less-damaged total loss vehicles that tend to have higher
salvage values. The decreases in the quality and quantity of inventory, and in
particular the availability of newer and less-damaged vehicles, are further
aggravated under the purchase agreement method of sale and can have a material
adverse effect on the operating results and financial condition of the Company.

              Competition. Historically, the automotive salvage industry has
been highly fragmented. As a result, the Company faces intense competition for
the supply of salvage vehicles from vehicle suppliers, as well as competition
from processors of vehicles from other regional salvage pools. These regional
salvage pools generally process vehicles under the fixed fee consignment method
and generally do not offer the full range of services provided by the Company.
The salvage industry has recently experienced consolidation, however, and the
Company believes its principal publicly-held competitor is Copart. Copart has
completed a number of acquisitions of regional salvage pools and competes with
IAA in most of IAA's geographic markets. Due to the limited number of vehicle
suppliers, competition is intense for salvage vehicles from Copart and regional
suppliers. It is also possible that the Company may encounter further
competition from

                                       10
<PAGE>   11
existing competitors and new market entrants that are significantly larger and
have greater financial and marketing resources. Other potential competitors
could include used car auction companies, providers of claims software to
insurance companies, certain salvage buyer groups and insurance companies, some
of which presently supply auto salvage to IAA. While most insurance companies
have abandoned or reduced efforts to sell salvage without the use of service
providers such as the Company, they may in the future decide to dispose of their
salvage directly to customers. There can be no assurance that the Company will
be able to compete successfully against current or future competitors or that
competitive pressures faced by the Company will not have a material adverse
effect on its operating results and financial condition.

              Dependence on Key Insurance Company Suppliers. Historically, a
limited number of insurance companies has accounted for a substantial portion of
the Company's revenues. For example, in 1999, vehicles supplied by the Company's
three largest suppliers accounted for approximately 43% of the Company's unit
sales. The largest suppliers, State Farm Insurance, Farmers Insurance, and
Allstate, each accounted for approximately 16%, 14%, and 13%, respectively, of
the Company's unit sales. A loss or reduction in the number of vehicles from any
of these suppliers, or adverse change in the agreements that such suppliers have
with the Company, could have a material adverse effect on the Company's
operating results and financial condition.

              Purchase Agreement Method of Sale. The Company has entered into a
number of purchase agreements, including agreements with its most significant
insurance suppliers, that obligate the Company to purchase most salvage vehicles
offered to it at a formula percentage of ACV. From 1993 to 1996, increased ACVs
on which the Company's costs are based reduced the profitability that the
Company realizes on purchase agreement contracts. This could occur again if used
car prices increase faster than selling prices of salvage vehicles at auction.
Further increases in ACVs or declines in the market or auction prices for
salvage vehicles could have a material adverse effect on the Company's operating
results and financial condition. The Company has added adjustment and
risk-sharing clauses to its new standard purchase agreement contracts designed
to provide some protection to the Company and its customers from certain
unexpected, significant changes in ACV's that are not accompanied by a
comparable increase in sales prices.

              Governmental Regulation. The Company's operations are subject to
regulation, supervision and licensing under various federal, state and local
statutes, ordinances and regulations. The acquisition and sale of totaled and
recovered theft vehicles is regulated by state motor vehicle departments in each
of the locations in which the Company operates. Changes in governmental
regulations or interpretations of existing regulations can result in increased
costs, reduced salvage vehicle prices and decreased profitability for the
Company. For example, the Company believes legislation currently being
considered by Congress could have a negative impact on the number of buyers
attending an auction as well as increase some of the costs to those buyers. This
legislation could increase governmental regulation of certain operations of the
Company. In addition to the regulation of sales and acquisitions of vehicles,
the Company is also subject to various local zoning requirements with regard to
the location of its auction and storage facilities. These zoning requirements
vary from location to location. Failure to comply with present or future
regulations or changes in existing regulations could have a material adverse
effect on the Company's operating results and financial condition.

              Provision of Services as a National or Regional Supplier. The
provision of services to insurance company suppliers on a national or regional
basis requires that the Company expends resources and dedicate management to a
small number of individual accounts, resulting in a significant amount of fixed
costs. The development of a referral based national network service, in
particular, has required the devotion of financial resources without immediate
reimbursement of such expenses by the insurance company suppliers.

              Integration and Expansion of Facilities. The Company seeks to
increase sales and profitability through acquisition of other salvage auction
facilities, new site expansion and the increase of salvage vehicle volume at
existing facilities. There can be no assurance that the Company will continue to
acquire new facilities on terms economical to the Company or that the Company
will be able to add additional facilities on terms economical to the Company or
that the Company will be able to increase revenues at newly

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<PAGE>   12
acquired facilities above levels realized prior to acquisition. The Company's
ability to achieve these objectives is dependent, among other things, on the
integration of new facilities, and their information systems, into its existing
operations, the identification and lease of suitable premises and the
availability of capital. There can be no assurance that this integration will
occur, that suitable premises will be identified or that additional capital will
be available to fund expansion and integration of the Company's business. Any
delays or obstacles in this integration process could have a material adverse
effect on the Company's operating results and financial condition. Furthermore,
the Company has limited sources of additional capital available for
acquisitions, expansions and start-ups. The Company's ability to integrate and
expand its facilities will depend on its ability to identify and obtain
additional sources of capital to finance such integration and expansion. In the
future, the Company will be required to continue to improve its financial and
management controls, reporting systems and procedures on a timely basis and
expand, train and manage its employee work force. The failure to improve these
systems on a timely basis and to successfully expand and train the Company's
work force could have a material adverse effect on the Company's operating
results and financial condition.

              Volatility of Stock Price. The market price of the Company's
common stock has been and could continue to be subject to significant
fluctuations in response to various factors and events, including variations in
the Company's operating results, the timing and size of acquisitions and
facility openings, the loss of vehicle suppliers or buyers, the announcement of
new vehicle supply agreements by the Company or its competitors, changes in
regulations governing the Company's operations or its vehicle suppliers,
environmental problems or litigation.

              Environmental Regulation. The Company's operations are subject to
federal, state and local laws and regulations regarding the protection of the
environment. In the salvage vehicle auction industry, large numbers of wrecked
vehicles are stored at auction facilities for short periods of time. Minor
spills of gasoline, motor oils and other fluids may occur from time to time at
the Company's facilities and may result in soil, surface water or groundwater
contamination. Petroleum products and other hazardous materials are contained in
above ground or underground storage tanks located at certain of the Company's
facilities. Waste materials such as waste solvents or used oils are generated at
some of the Company's facilities and are disposed of as nonhazardous or
hazardous wastes. The Company believes that it is in compliance in all-material
respects with applicable environmental regulations and does not anticipate any
material capital expenditure for environmental compliance or remediation.
Environmental laws and regulations, however, could become more stringent over
time and there can be no assurance that the Company or its operations will not
be subject to significant compliance costs in the future. To date, the Company
has not incurred expenditures for preventive or remedial action with respect to
contamination or the use of hazardous materials that have had a material adverse
effect on the Company's operating results or financial condition. The
contamination that could occur at the Company's facilities and the potential
contamination by previous users of certain acquired facilities create the risk,
however, that the Company could incur substantial expenditures for preventive or
remedial action, as well as potential liability arising as a consequence of
hazardous material contamination, which could have a material adverse effect on
the Company's operating results and financial condition.


ITEM 3.  QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.


         The Company had approximately $12.8 million of investments as of June
30, 2000. These investments largely consisted of state government obligations
and had either variable rates of interest or stated interest rates ranging from
3.55% to 6.55%. The Company's investments are exposed to certain market risks
inherent with such assets. This risk is mitigated by the Company's policy of
investing in securities with high credit ratings and investing through major
financial institutions with high credit ratings.

         The Company has senior notes payable of $20,000,000 at an interest rate
of 8.6%. The terms of the note agreement are such that pre-payment of such debt
may not be advantageous to the Company in the event that funds may be available
to the Company at a lower rate of interest.

                                       12
<PAGE>   13

PART II.  OTHER INFORMATION.


ITEM 1.  LEGAL PROCEEDINGS.  INAPPLICABLE

ITEM 2.  CHANGES IN SECURITIES.  INAPPLICABLE

ITEM 3.  DEFAULTS UPON SENIOR SECURITIES.  INAPPLICABLE

ITEM 4.  SUBMISSION OF MATTERS TO A VOTE ON SECURITY HOLDERS.

              At the Annual Meeting of Shareholders of the Company held June 21,
2000 the shareholders (i) elected eight directors to serve on the Company's
Board of Directors, (ii) approved the adoption of an amendment to the Company's
1991 Stock Option Plan increasing the number of shares of common stock reserved
for issuance thereunder by 1,000,000 shares, and (iii) ratified the Company's
appointment of KPMG LLP to serve as the Company's independent auditors for the
fiscal year ending December 31, 2000. Shareholders holding 10,943,686 shares of
Common Stock, representing 94.4% of the total number of shares outstanding and
entitled to vote at the meeting, were present in person or by proxy at the
meeting.

The vote for nominated directors was as follows:

             Director                 Votes for             Votes Withheld
             --------                 ----------            --------------
      Thomas J. O'Malia               10,161,135               782,551
      Christopher G. Knowles          10,184,115               759,571
      Maurice A. Cocca                10,184,135               759,551
      Susan B. Gould                  10,184,135               759,551
      Peter H. Kamin                  10,183,566               760,120
      Melvin R. Martin                10,184,135               759,551
      Joseph F. Mazzella              10,183,792               759,894
      John K. Wilcox                  10,170,860               772,826

The vote to approve the adoption of an amendment to the Company's 1991 Stock
Option Plan was as follows: For: 6,244,319; Against: 2,959,385;
Abstain: 478,491; and Broker Non-Vote: 1,261,491.

The vote for ratifying the appointment of KPMG LLP was as follows: For:
10,941,530; Against: 756; and Withheld: 1,400.

ITEM 5.  OTHER INFORMATION.  INAPPLICABLE

ITEM 6.  EXHIBITS AND REPORTS ON FORM 8-K.

(a)      EXHIBITS.

              10.1  Amended and Restated 1991 Stock Option Plan

(b)      REPORTS ON FORM 8-K.  No reports on Form 8-K were filed during the
fiscal quarter ending June 30, 2000.

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<PAGE>   14


                                   SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.


                                            INSURANCE AUTO AUCTIONS, INC.




Date: August 14, 2000                       By:      /s/ Stephen L. Green
      ---------------                          --------------------------------
                                            Name:    Stephen L. Green
                                            Title:   Vice President - Finance,
                                                     Chief Financial Officer

                                                     (Duly Authorized Officer
                                                     and Principal Financial
                                                     Officer)

                                       14
<PAGE>   15


                                  EXHIBIT INDEX




EXHIBIT NO.       DESCRIPTION
-----------       -----------

10.1              Amended and Restated 1991 Stock Option Plan

27.1              Financial Data Schedule


*This item is a management contract or compensating plan or arrangement required
to be filed as an exhibit to this form pursuant to Item 601(b)(10)(iii) of
Regulation S-K.

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